Monday, February 21, 2005

The magic of the market

Nobel laureate and economist Gary Becker writes in Opinion Journal that he supports personal savings accounts for Social Security. But he extends his argument beyond purely economic reasons and focuses on how partial privatization would alter the political behavior of the federal government:

So the really strong arguments for privatization are that they reduce the role of government in determining retirement ages and incomes, and improve government accounting of revenues and spending obligations. All the other issues are really diversions, because neither advocates nor opponents of privatizing Social Security generally answer the most meaningful question: Is there as strong a political economy case for eliminating government management of the retirement industry as there is for eliminating its management of most other industries?

My answer is "yes."

This argument for personal accounts reminds me of a section from P.J. O’Rourke’s “Eat the Rich” as he explains how the British took a laissez-faire approach to Hong Kong and – by doing nothing – created one of the greatest economic powerhouses on the planet:

[British colonial officer John] Cowperthwaite has said of his role in Hong Kong’s astounding growth: “I did very little. All I did was try to prevent some of the things that might undo it.” He served as the colony’s financial secretary from 1961 to 1971. In the debate over the 1961 budget, he spoke words that should be engraved over the portals of every legislature worldwide; no, tattooed on the legislators’ faces:

“…in the long run the aggregate of decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is less likely to do harm than the centralized decisions of a government; and certainly the harm is likely to be counteracted faster.”

This is precisely why I think Democrats and other opponents of personal accounts are so opposed to reform: they’re not afraid of failure – they’re terrified of success.